Investigating the Relationship and Direction of Causality Between FDI and Economic Growth: Evidence From Saudi Arabia, 1985-2012

Abstract

This study empirically investigates the relationship and direction of causality between foreign direct investment (FDI) and economics growth using time-series data from Saudi Arabia over the period 1985-2012. Based on previous studies, we treat economic growth and FDI as endogenous variables. In the aggregate level, we find that FDI and economic growth are significant causes of each other. These findings lead us to conclude that that FDI growth and economic growth have an endogenous relationship. Nevertheless, the study confirms that FDI promotes economic growth and further provides an estimate that one SAR of FDI adds about 15.58 SAR to the GDP.

JEL Codes: F21, F22, F23, F33, 016 and 033